5 ms·

And is your point then correlation == causation?

joshu 12y ago
The stronger companies tend to do Series A over convertible notes. The trend toward notes is easier, but not better for startups. BTW: By "average" I mean that the sum of dollars invested versus the sum of dollars returned or marked to market.
- mbesto 12y ago
  > The stronger companies tend to do Series A over convertible notes. Would it be fair to say that the stronger companies also tend to have either (1) strong fundamentals (i.e. historic financial numbers to base a valuation on) or (2) rapid growth (i.e. the future is clear and the network effects are clearly on the horizon). My general assumption is that most angel deals are done "pre-curve" and equity deals are done during the curve. Every investors wants to be during the curve as it's the highest upswing in short term returns. The better argument here is probably - why are angels even entertaining debt deals then?
- nostrademons 12y ago
  Isn't that because stronger companies have more access to a Series A? I thought the point that's being made by other commenters on this article (grellas et al) is that convertible notes are frequently used for bridge financing to keep the company going when they don't yet have the product/traction milestones needed to justify a Series A. In this case, the alternative is going out of business. It's quite possible for the average convertible debt startup to be worse than the average Series A funded startup, and yet for taking that note to be a good move for any one single startup that happens to be in that position. The averages are bad because it allows more marginal startups to be funded; the specifics are good because it allows more marginal startups to be funded. I suppose one take-away for founders could be to beware the signaling risks of taking convertible debt if you are, in fact, good enough to raise a Series A. Another might be to do everything possible to get traction before running out of money. Both of those are fairly well-known already, however.

joshu 12y ago

The stronger companies tend to do Series A over convertible notes. The trend toward notes is easier, but not better for startups. BTW: By "average" I mean that the sum of dollars invested versus the sum of dollars returned or marked to market.

mbesto 12y ago
> The stronger companies tend to do Series A over convertible notes. Would it be fair to say that the stronger companies also tend to have either (1) strong fundamentals (i.e. historic financial numbers to base a valuation on) or (2) rapid growth (i.e. the future is clear and the network effects are clearly on the horizon). My general assumption is that most angel deals are done "pre-curve" and equity deals are done during the curve. Every investors wants to be during the curve as it's the highest upswing in short term returns. The better argument here is probably - why are angels even entertaining debt deals then?
nostrademons 12y ago
Isn't that because stronger companies have more access to a Series A? I thought the point that's being made by other commenters on this article (grellas et al) is that convertible notes are frequently used for bridge financing to keep the company going when they don't yet have the product/traction milestones needed to justify a Series A. In this case, the alternative is going out of business. It's quite possible for the average convertible debt startup to be worse than the average Series A funded startup, and yet for taking that note to be a good move for any one single startup that happens to be in that position. The averages are bad because it allows more marginal startups to be funded; the specifics are good because it allows more marginal startups to be funded. I suppose one take-away for founders could be to beware the signaling risks of taking convertible debt if you are, in fact, good enough to raise a Series A. Another might be to do everything possible to get traction before running out of money. Both of those are fairly well-known already, however.